Chemical Industry IIFT-K Insigna

8/2/2019 Chemical Industry IIFT-K Insigna

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Chemical Industry

Kunal Patil Sagar Kashyap Pulkit Khare

Indian Institute of Foreign Trade, Kolkata


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CHEMICAL INDUSTRY IN INDIA

Chemical Industry is one of the fastest growing industries in Indian economy. It is also one of the

oldest domestic industries which are contributing to the Indian economy; it started in 1947 soon

after India got Independence. At present chemical industry is contributing almost 13% to theGDP of the country around US $ 30 billion. Volume of production in chemical industry positions

India as third largest producer in Asia (next to China and Japan), and twelfth largest in the world.

The Industry is growing at the rate of 10% to 12%. The industry, comprising both small scale

and large units (including MNCs) produces several thousands of products and bi-products,

ranging from plastics and petro-chemicals to cosmetics and toiletries. India is a strong player in

the pharmaceutical market, it ranks 4th in volume & 13th in terms of value in the world and 2nd

largest producer of agrochemicals in Asia.

Our study basically focuses on the sub-segments of chemical industry:

Basic chemicalsIt is used in petrochemicals, organic, inorganic, dyes and paints. Specialty chemicals It is used in textile, leather, paper, detergent, rubber, paints,

polyester, oil and gas.

Agricultural chemicals It is used in making herbicide, bio-pesticide, fungicide, andinsecticides

Indian Chemical Manufacturing Sector

Market Value grew by 15.8% in 2010 to reach a value of $89,103.8 million. In 2015, the Indian

chemical manufacturing sector is forecast to have a value of $150,805.9 million, an increase of

69.2% since 2010. Basic chemicals are the largest segment of the chemical manufacturing sector

in India, accounting for 35% of the sector's total value. The Indian chemicals manufacturing

sector has experienced a slight rebound from the global economic downturn of 2009 with good

rates of growth forecast for the future however rivalry in the sector remains strong. Due to the

commoditized nature of chemical products, prices have risen as demand has increased.


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ANALYSIS

Key Buyers:1. Manufacturers of plastic products2. Pharmaceuticals companies3. Consumer chemical manufacturers, and4. others, and

Key SuppliersOil and Gas companies

The Indian chemicals manufacturing sector has experienced a slight rebound from the global

economic downturn of 2009 with good rates of growth forecast for the future however rivalry in

the sector remains strong. Due to the commoditized nature of chemical products, prices have

risen as demand has increased. The global chemicals manufacturing sector is one of the world's

largest in terms of revenue, and one of the most diverse in terms of products offered. Its

performance has been very much affected by national and international economic situations. In

this sector, buyer power is strengthened by the fact, that customers can obtain the same materials

35.00%

25.30%

24.70%

15.00%

Indian Chemical Manufacturing Sector Segmentation by value, 2010

Basic chemicals

Pharmaceutical products

Fine/specialty chemicals

Fertilizer and agrochemicals


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needed from several market players and are price-sensitive. However, it is possible, that there is

no substitute for certain commodity chemicals, which means, the choice of sources is limited,

thus weakening buyer power. Vertical integration is common in this market, although not as

popular as when it comes to commodity chemicals. Companies in the extractive industries add

value to their raw materials by converting them into chemicals. Entry to the market requires large

amounts of capital to set up high volume production plants and benefit from scale economies;

small scale entry is unlikely to be successful. Rivalry is strong among market players, as

companies are on the whole selling undifferentiated products where branding is of little

significance. The threat of substitutes in this sector is very weak as buyers generally need

products of a particular chemical composition, unobtainable anywhere else.

0

20000

40000

60000

80000

100000

120000

140000

160000

2010 2011 2012 2013 2014 2015

$million

Year

India chemical manufacturing sector value forecast: $ million, 2010-2015


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Basic Chemicals

Basic Chemicals are the most concentrated and saturated category of chemicals. With all the

industrial needs to be fed, they have the largest share in chemical market. They are also known

as commodity chemicals.This sector include organic and inorganic chemicals, bulk petrochemicals, other chemical

intermediates,

Plastic resins, synthetic rubber, man-made fibers, dyes and pigments. The commodity chemicals

market is characterized by low product differentiation, but there is a strong and sustained

demand for these products.

Indian petrochemicals industry is 700 Million US$ and the fastest growing sector with 15%

CAGR.

Major players

Reliance Industries Limited has a major market share in the basic chemicals industry mainly due

to the presence of Petrochemicals. The other competitors include united phosphorus, BASF India

Ltd etc.

The major organic chemicals are methanol, acetic acid and phenol. They constitute for around 60

% of basic chemicals production in India. Methanol is mainly used in end user chemicals and

energy sector, whereas acetic acid is used in Paints and adhesives as solvents.

Trends in the industry

700

260

110

300

Market share (In US $)

Petrochemical

Inorganic

Dyes and paints

Organic


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As Mergers & Acquisition have been on the rise, the focus of the sector has shifted towards the

emerging sectors such as China and places like Russia due to high availability of feedstock and

Chinas huge demand. Also, Government has extended its support through providing duty

protection to domestic manufacturers.

Drivers

Indian Organic chemical industry is expected to grow at 5% annually till 2014. Rise in demand

for methanol due to sequential rise in demand in construction areas and new fields like fuel

blending is one of the drivers in the industry.

Challenges

The basic chemicals industry provides with very low product differentiation and hence there is

less value addition from the manufacturer side. This segment is driven by high capital high entry

barriers such as regulation on health, safety etc. Commodity chemicals are generally mass

marketed and converted into other, more valuable products. They are sold primarily in bulk,

meaning that scale economies are very important.

Lack of cheaper raw materials is a major hindrance in our country. The cost of feedstock is much

higher in India than China, Malaysia.

Also, the domestic prices are highly influenced by International prices and hence there are huge

variations in the price irrespective of domestic demand and supply.

Macro and Micro Environment

There are many factors that decide the price of chemicals ranging from macro factors such as

International market to micro level to tax reforms and labor laws. Also the cyclicity of

chemicals play an important part in supply as well as pricing as the basic chemicals are used as

end product and raw materials by the industry.

Future Outlook


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The focus of the big players in chemical industry has slowly started to identify the potential of

countries like China and India, provided we cater to their demands through proper infrastructure.

Following are the fields we should look to improve upon to tap the market:

Improve feedstock supply Consolidation of small scale industries Explore other countries Wider products on display

Specialty Chemicals

Specialty chemicals are group of relatively high value, low volume chemicals known for their

end user applications or performance enhancing properties. Specialty chemicals provide the

required solutions to meet the customers need. It is highly knowledge driven industry, the

success factor for this industry is to understand the customer needs and products.

Specialty chemicals are used in cosmetic additives, water treatment products, dyes, sanitation

agents, plasticizers, paints, adhesives, flavors and fragrances, paper, additives and industrial

cleaners. Specialty chemicals find use in large variety of industries such as paints, adhesives,flavors and fragrances, paper, additives and industrial cleaners. The active pharmaceutical

ingredients (APIS) is the largest segment of Specialty chemicals. Specialty chemicals industry is

worth US$860 million

Significance

The specialty chemicals industry constitutes about one-third Indian chemical industry.

Growth Potential

India has got a huge potential in specialty chemical industry as there is a rise in mid income

household which is expected to create a large market size, there is high growth in end use

markets and evolving customer needs are expected to drive the growth of specialty chemicals,

unique customer needs and strong R&D capability.


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In comparison with European chemical industry, faced with similar structural framework of

limited carbon feedstock availability, European chemical industry developed the specialty

chemical segment which has a much lower dependency on raw material than base chemicals.

India could very well emulate the growth of specialty chemicals industry in Europe which is

currently estimated at more than 10 times the size of the industry in India.

Major players of fine and specialty chemicals

India: ION Exchange, Balmer Lawrie, Dai Ichi Karkaria. etc. MNC: Ciba, Hoechst, Foseco, Nalco Chemicals, Clariant, ICI etc.

FUTURE OUTLOOK

This industry calls for innovation and development of local products based onunderstanding of the needs of Indian consumer.

The development of strong channels to reach out effectively to customers is so immensestrategic importance.

Establishing leadership position in sustainable growth through an integrated approachacross the value chain could help create differentiation.

Development of chemical and petrochemical cluster through Petroleum, Chemicals andPetrochemicals Investment Regions (PCPIR) would enable companies to establish

effective upstream linkages for increased cost effectiveness.

Agro chemicals

Indias is the fourth largest producer of agrochemical globally after US, Japan and China. The

Indian agro chemicals market grew at 11% from 1.22 billion US$ in 2008 to 1.36billion US $ in

2009.indais agrochemical consumption is one of the lowest in the world with 1hectare

consumption of 0.58 kg compared to US 4.5 kg and Japan 11kg per hectare. Currently R & D

expense as a percent of turnover in India is 1 % whereas globally it is over 11%.


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Major Player in this industry includes United Phosphorous Ltd, Bayer Corp Science Ltd, and

BASF etc. In this industry, the top players control more than 80 %of the industry. The industry is

mainly concentrated in Gujarat and Maharashtra.

Future Outlook

With the current population of India, per capita size of lands is decreasing, the usage of

pesticides will increase over a period of years. Besides increasing domestic consumption Indian

agrochemical industry also focus on doubling the exports by next 4 yrs with the adoption of

sophisticated technologies.

Overall Challenges to the Industry

Chemical industry in India is deep rooted. It has huge potential for growth however there are few

factors which hinder the growth of the industry.

Low R& D levelsThe amount of money spent by Indian players is far below the global average .Lack of skills and

necessary funds are the major concerns for the industry before investing into R & D. the

government has realized the importance of R& D and hence provides with many incentives to

promote these activities in the industry.


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Low level of common InfrastructureCommon infrastructure means a cluster or region where specialized facilities result in reduction

in costs and efforts. The government has taken few steps in this regard but a lot has to be done to

be able to attract exports.

Conclusion

There has been a cautious growth of chemical industry in India. . It has been evident that the

domestic market is still leveraging and it continues to offer high growth. This can also be

accounted to competition from both imports and exports by major players in India .Post

downturn the need to tap emerging markets has been felt at large and hence it would be

important for the domestic market to be able to compete with global players. Hence, to continue

further growth it would be essential for the industry as a whole to restructure their strategies

towards global market.

Chemical Industry IIFT-K Insigna

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